Jon Sigurdsen, Portfolio manager
The renewable energy sector continues to be a bumpy ride for investors and portfolio managers alike. After a strong start to the year, with the benchmark being up 16%, the sector is now trailing the MSCI World Index by 9.7%. April saw a fall back of -5.4% alone and DNB Portfolio manager Jon Sigurdsen points to “weaker margins in the biofuel industry and generally a lack of winners,” for the main reasons behind the disappointing performance.
Seeing less opportunity in biofuel and solar, the DNB team is a strong believer in grid investments. Sigurdsen and his co-manager Christian Rom are currently adding positions saying that “the sector offers high growth visibility at very attractive value.”
Attractive economics in the energy efficiency space
The energy efficiency space also stands out as a favorable topic going forward. As the oil price is still holding up well, the economics for energy efficiency are attractive at the current levels. “Improving technology and favorable regulation bring out attractive companies in the subsector,” Sigurdsen points out, adding that he has positioned the fund to benefit.
The top names year to date for the DNB Renewable Energy team have in particular been Fuel Systems Solutions that due to renewed talk of natural gas incentives in the US and more signs of growth driven by improving economics, have done well. Prysmian, who is benefitting from grid bottlenecks, and Veeco Instruments, with growing LED adaption giving higher factory utilization, are also companies that have performed well so far in 2012.
Attractively priced companies
Going forward, the managers believe that a turnaround will come and that the sector as a whole is currently very cheap. According to DNB estimates, 12m forward EV/EBIT is down to 7.5x and with a price/book of 1.07x, the market is near an all-time-low. “In our opinion the risk/reward in the portfolio has never been better as we see that valuations are continuing to reach new lows,” the team explains.
Promising sector outlook
The positive outlook is further amplified by the fact that several companies have delivered strong results so far this reporting season. Talking in general terms, Sigurdsen is positive about the performance potential of the renewables sector, stating that “renewables will become more and more cost competitive”.
Our funds in the renewable energy space:
DNB Renewable Energy (LU0302296149) – a long only UCITS fund domiciled in Luxembourg
DNB ECO (LU0547714286) – a long/short, market neutral alternative UCITS fund domiciled in Luxembourg
Source: DNB Monthly report. Numbers in EUR performance as of 30/04/12 vs the NEX benchmark
